One stock is on fire and at all-time highs. The other has tumbled 30% over the past year, woefully trailing the broader market. Both are table-pounding buys heading into the new year.
I’ve seen a lot of headlines about how the stock market is expensive. That could be true, but the market consists of thousands of individual companies trading at various prices and valuations at any given time. Look hard enough, and there’s always a deal somewhere.
And no, you don’t have to look in the market’s trash heap to find a bargain. There routinely are high-quality names on sale. For example, Meta Platforms (META 1.32%) and Adobe (ADBE 0.27%) are among the world’s most prominent tech companies. Yet their stocks are priced right for buyers today.
Despite both stocks trading at similar affordable valuations, they’ve had very different years. Meta trades near an all-time high, while Adobe is on a 30% decline. Find out what’s happening with each tech stock and what makes them compelling buys for 2025.
Meta is a case where buying into momentum can make you lots of money
Most stocks don’t appear on buying lists like this after appreciating almost 400% in under two years. But Meta Platforms is built differently. It’s become hard for the stock to keep up with Meta’s core business: advertising to the 3.29 billion people who use social media apps like Facebook, Instagram, WhatsApp, and Threads daily. The company will generate around $163 billion in revenue this year, almost 21% more than in 2023. Meta is highly profitable, with about a third of that winding up as free cash flow.
The stock price seemingly can’t keep up with Meta’s earnings. The stock trades at a forward P/E of 26 today, even after its epic run. Meanwhile, analysts estimate the company will grow earnings by almost 18% annually over the long term (three to five years). That’s a PEG ratio of 1.4. I happily buy high-quality stocks at PEG ratios up to 2 or 2.5, so Meta’s a bargain by this measure. The company’s advertising business is a juggernaut with a long growth runway ahead as global advertising dollars continue shifting from legacy media to online and social media.
Meta is a tremendous player in artificial intelligence (AI), too, which is almost like icing on the cake at this point. It has developed an AI model, accumulated the computing power to use it, and continues to invest billions of dollars annually into its AI segment (Reality Labs), which doesn’t even make money yet. Assuming it eventually does, it could add a new level of growth to an already excellent business. Don’t hesitate to buy Meta at highs, because it has the fundamentals to more than justify its current value.
Adobe is a tantalizing bargain after becoming an unpopular name on Wall Street
Adobe is one of the world’s largest technology companies, offering cloud-based creativity software, including:
- Creative Cloud: design, image, and video creation and editing tools
- Document Cloud: a platform for creating and editing PDF documents
- Experience Cloud: tools and services for marketing and customer relationship management (CRM)
The company generates $21.5 billion in annual revenue, converting over 36% of that into free cash flow. However, the stock has sold off this year as potential threats to Adobe’s business emerge. Fast-growing competitors, like Canva and Figma, are thriving; Adobe even tried to acquire the latter but abandoned the deal due to regulatory scrutiny. Additionally, generative AI has become capable of generating high-resolution images from worded prompts, leading some to wonder whether AI will eventually replace some of Adobe’s products.
Investors shouldn’t dismiss any potential disruptors, but the stock’s sell-off could be an overreaction. AI can generate images, but it’s far from nuanced and currently doesn’t come close to replacing Adobe’s well-honed technology. Plus, Adobe is already integrating AI technology into its products. It’s possible that AI ultimately improves Adobe’s business, rather than harming it.
AI will improve over time, but it’s still a long leap to replace all of Adobe’s collective tools and features fully. Meanwhile, the business is still growing revenue by nearly 10%, and analysts expect annualized earnings growth to average 15% over the long term. The stock’s PEG ratio is 1.5 today, underlining the stock’s current appeal. Investors who buy Adobe should watch for signs that AI or competition have impacted the business. For now, Adobe probably deserves the benefit of the doubt. The stock’s tumble is a buying opportunity worth jumping on.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe and Meta Platforms. The Motley Fool has a disclosure policy.
